Applebee's welfare: California cities going broke.

• Author: Cavanaugh, Tim
• Position: Citings - Applebee's International Inc. Applebee's Neighborhood Grill & Bar

HOW SICK are California's county and city governments? Sacramento's $25 billion state budget deficit has become infamous nationwide, although on a per capita basis the Golden State is far from America's most troubled state. But local governments around California are dangerously close to default, and many of them are attempting to conceal that truth.

In April the eastern Los Angeles County town of Montebello revealed that it needed a bridge loan to avoid defaulting on $126 million in bond debt at the end of this year. Montebello has a general fund budget of $47 million with a $6.6 million deficit, and the city may not be able to collect on a $17 million loan it made to its redevelopment agency. California Controller John Chiang has ordered an audit of the city's financial records, which he calls "false, incomplete, or incorrect."

One example of Montebello's shadow budget: An effort by City Administrator Peter Cosentini to track down off-the-books funds turned up a $1 million payout the city made in 1999 to a connected local restaurant developer. The forgivable loan, according to a staff report, was intended to fill an "untapped market" for an "entertainment venue and restaurant" by funding a new chain of Latin-themed restaurants branded by the pop star Juan Gabriel. After that deal went south, the...